Problem - On January 1, 2015, Casey Corporation exchanged $3,170,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems.
At the acquisition date, Casey prepared the following fair-value allocation schedule:
|
Fair value of Kennedy (consideration transferred)
|
|
$3,170,000
|
|
Carrying amount acquired
|
|
2,600,000
|
|
Excess fair value
|
|
$570,000
|
|
to buildings (undervalued)
|
$324,000
|
|
|
to licensing agreements (overvalued)
|
(198,000)
|
126,000
|
|
to goodwill (indefinite life)
|
|
$444,000
|
Immediately after closing the transaction, Casey and Kennedy prepared the following postacquisition balance sheets from their separate financial records.
|
Accounts
|
Casey
|
Kennedy
|
|
Cash
|
$472,000
|
$184,500
|
|
Accounts receivable
|
1,235,000
|
316,000
|
|
Inventory
|
1,470,000
|
165,500
|
|
Investment in Kennedy
|
3,170,000
|
0
|
|
Buildings (net)
|
5,820,000
|
1,920,000
|
|
Licensing agreements
|
0
|
3,430,000
|
|
Goodwill
|
799,000
|
0
|
|
Total assets
|
$12,966,000
|
$6,016,000
|
|
Accounts payable
|
(336,000)
|
(406,000)
|
|
Long-term debt
|
(3,630,000)
|
(3,010,000)
|
|
Common stock
|
(3,000,000)
|
(1,000,000)
|
|
Additional paid-in capital
|
0
|
(500,000)
|
|
Retained earnings
|
(6,000,000)
|
(1,100,000)
|
|
Total liabilities and equities
|
$(12,966,000)
|
$(6,016,000)
|
Prepare a January 1, 2015, consolidated balance sheet for Casey Corporation and its subsidiary Kennedy Corporation.